Interest rates will soon fall says Westpac

According to Westpac the Reserve Bank of Australia is getting ready to cut interest rates. That has to be good news for home buyers, homeowners and housing construction industry. But will it happen in October?

Westpac is Australia's second largest home loan lender, and the biggest winner in mortgage growth in recent years since the GFC. It believes the RBA will start cutting interest rates at its next meeting. Many other experts says lower interest rates are on the way, but after October.

The prophet of profits bank

Westpac, has a good track record in predicting the timing of RBA rate cuts. After all it has a big stake in the outcomes. Westpac believes that reigning in the value of the high Australian dollar would help Australian businesses, especially those that are not in the mining sector.

It would also be shot in the arm for the ailing house building industry, and that is a big employer

ANZ predicts a brace of interest rate cuts, in October next month and in November!

The RBA was close to cutting interest rates in its September meeting, but wanted more data on the economy due later in September . And things are suddenly unraveling for Australia with global economic conditions going south, the drop in commodity prices hurting Australia, and the low inflation all mean the bank could cut the base interest rate at its October 2 meeting.

All in all, a mortgage rate cut of 0.5% before Christmas is looming as a real possibility. Source: Mr Mortgage Mortgage information

Mortgage Interest Rates: Why the RBA is leaning toward a rate cut in Oct 2

Will the RBA Backflip to Lower Interest Rates?

In September the RBA saw no reason to change interest rates.
Now two weeks later the financial experts are saying that the Reserve Bank of Australia is preparing the markets for cuts to interest rates? It apparently won't need to see the inflation figures due in November to make the move. Obviously there are things that the RBA board members didn't see as important then, that have now emerged.

Suddenly the RBA signalled its new bias towards an easing on October 2 in a statement released by its governor, Glenn Stevens, after yesterday's board meeting in Sydney

How things have changed since August.

It was just in August that optimism ruled the RBA's statements on the World Economy. In particular that China's growth appeared to have stopped slowing. yesterday's updated assessments of international conditions is now more subdued. 

Australian Banks are lowering their mortgage rates independent of the Reserve Banks

Just weeks ago the Big Four banks were not passing on the RBA rate reductions.
Now the CBA has about faced and  lowered its fixed rates by up to .4%. What's that all about? First they say they can't afford it, then drop their pants weeks later?

When the big banks broke ranks with the RBA on interest rate reductions, they broke the pact with the RBA to support the Banks. That is a dangerous move and the banks seem to be thinking that through.

Europe's economy is still going backwards

Anyone that thinks that Europe has fixed its problems with Greece, Spain and Portugal isn't thinking straight. It will be 5 to 10 years before these problems have been ironed out.

Growth in the US was ordinary

The US economy is still in a hole. Its climbing out of a creator left by Bush's scatter brained bunch. What if the Party that caused that hole gets back into power again in November. Another disaster looms large in my view. 

Obama promised blue skies, and then discovered the economy was trashed by years of Republican actions. 

Clearly Obama should have been straight with the people once he discovered the Gravity of the mess he found. He should have told the US that they had an eight year hole to fill. Then the Republicans blocked his efforts at job creation. And now people belief that the Republicans can fix things? We have the same problem in Australia. A hostile opposition party trying to hold Australia back. 

The biggest problem I see for the  US is  property prices increasing and then mortgage rates increasing, and then the Republicans getting the population to work for less money. Either way, home prices in the US are down for years.

China had uncertainty about near-term growth

China has so many areas it can grow in, but right now they don't know which way to go, and even their Premier says the economy is disorganised. When it gets it's act together the growth will continue. 

The RBA is very concerned the big falls in "some coal and iron ore prices of importance to Australia, are not being reflected in the Price of the Australian Dollar

This is the dilemma that we face. The Australian Dollar is overpriced at its current value, given these in massive falls resources prices. But when those prices fell, the Australian dollar held up. That need to change.

It seems that the Australian Dollar is too attractive in an uncertain World, and paying good interest rates compare to other Countries. 

So if the RBA wants to shake this inertia, it might be thinking more than one reduction to get the momentum for a lower dollar in motion.  An Australian Dollar at 90 Cents US would make our economy so much better.

Food Security a hot topic, but not on the RBA radar?

One thing the RBA has not mentioned is Australia's bumper wheat crop in a hungry World.
Food security could be a factor just when Australian wheat growers are having a bumper crop, and major wheat producers like Russia, the US and Canada are having poor crop harvests.
So Australian Farmers are expecting a once in 20 year win on the grain prices, just at the very time that World Leaders are stating that Food Security is the future concern.
So Australia gets lucky again!

Miners pull back on projects

Lesser factors are the pull back of mining projects. Clearly, if all the projects talked about came on stream, there would be to many projects and no enough skilled people to handle them. And many Australians don't want to import workers for the purpose of bringing these projects forward.

Fortescue Metals Group became the first big resources company to scale back an investment program [funny about that] until prices recovered. Whilst the RBA has to consider the announcement as factual, you have to wonder at their real motive in this.

As the Prime Minister has said
"This is a boom with three distinct phases: a prices boom, which is now passing, an investment boom - still to reach its peak - and a production boom for the years and decades ahead."

Will Australia's inflation stay low with the carbon tax?

Economists have said that Australia's inflation rate is unlikely to climb above 3 per cent for the next one to two years, even with the Carbon tax effect added.
The RBA may well ignore the carbon tax inflationary effect, so that even a 3.5% inflation rate could be seen as within its comfort band.
The one thing that has not been looked at is the inflationary effect of a World wheat shortage on grocery prices. Wheat is just about everything that is in a packet these days.

Summary on Mortgage rates

The RBA seems to have gone from "no need" to reduce interest rates, to being concerned about the US, Chins, Europe, Asia and the sudden drop in commodity prices, whilst the dollar hangs too high. It clearly sees that the Dollar has to be forced to come down hard.
At the same time the CBA has reduced deeply its fixed rates interest on many home loans. A give away that it sees mortgage rates heading lower, and that competition in the mortgage market is heating up on thin home loan sales.

Home loan views sourced by Mr Mortgage

Credit card fees: Excessive surcharges to be banned

The Reserve Bank of Australia is urging business owners and operators to get ready for the ban on excessive credit card fees, to come into effect in January 2013

Taxis, Restaurants, Tourism and e-tailers are the worst offenders of credit card excessive charges

A Reserve Bank of Australia ruling to limit credit card surcharges to a "reasonable cost of card acceptance" will come into force on January 1st 2013.
The RBA had noted a large rise in the number of businesses levying card charges, with taxis, restaurants, tourism operators and e-tailers among the worst offenders.
The RBA says large businesses are the most common surchargers, but the proportion of small businesses that charge for card use has grown from about 4 per cent in 2005 to 25 per cent today.

The National Australia bank already working with Business Owners

NAB's David Gall says business owners will need to speak with their bankers. "Businesses that accept cards need to know what the cost of accepting cards is and the reasonable cost of surcharging," he says.
Processing costs can vary dramatically but are typically between 0.5 per cent and 2 per cent of the transaction cost.
NAB has introduced a more transparent credit card billing approach for its 120,000 business customers and Gall says it has been well received.

 "Merchants now receive a monthly breakdown of the fees charged by card issuers, allowing them to understand exactly how their monthly bill is made up" he says. The RBA will accept submissions about its surcharge plans before Friday. 

 It has received concerns that some businesses are using credit card surcharges to slug customers,rather than recoup the cost of accepting cards.

Other people's low interest money. The scourge that destroyed the US and the European economies.

Is the RBA right on the money with interest rates?

A lot of the Australian media is pushing the story that  interest rates are too high. But is the RBA on the money on this one?

Everybody seems to have a fixation and an opinion on interest rates these days, and you would think that lower interest rates would fix everyone's problems the way the media is attacking the RBA [Reserve Bank of Australia] these days.

But there are a growing number of people who actually want higher interest rates, especially the self funded retirees that gravitate to savings deposits. For them the higher the interest rates, the better.

The fact is that the RBA has two primary functions it uses interest rates. 

1. To contain inflation. And that band has been set at the Goldilocks rate between 25 and 2.8%. Higher or lower it acts.
2. To keep unemployment low.

On the basis that these two factors have been delivered, how could anyone argue against the RBA settings on rates?

Why low interest rates have destroyed the World Economy

let's keep this simple so anyone can understand it. 

What is the Euro, the US and even Australia's greatest problem? 

People have spent too much on over priced assets. Now they pay with higher interest rates and falling asset values. They are caught holding the problem. In Europe those interest rates are going to be sky high.

What made them do that?
They had cheap money thrown at then and they could not resist it.

What we are seeing now is two things.

1. The consequences of that spending binge, as people struggle under that debt and interest rates as their assets deflate.
2. Vested interest insiders pumping up and then deflating the markets with rumours of fixes and ruin, to give them the margins to profit of both rises and declines in values of shares.

The result is that people are constantly bombarded with false information that is repeated in the news. That fact is that a depression is spreading over Europe, and Governments have to force people into lower home values and suffering with lower expectations, or revert to their own currencies and deflate that value of their currencies, and so the value of assets by using the markets. And that means the break up of the Euro.

That's why Britain was wise to realise that it had to retain the Pound, and keep that possibily open to them.

The nonsense we here about interest rates.

What are people saying we need to do? Lower interest rates. Why? So people can suck up more debt, and buy over priced homes, and get retailing at the dizzy heights it was when people were spending like there was no tomorrow? They must be kidding.

If or China slows buying are minerals, we will have to deflate the value of our assets, so isn't it better not to add fuel to the fire now? BUt we have no control over that because we don't control the Euro, or the Chinese domestic economy or the US economy.

The Euro issues, and how it affects us.

There is also a lot of bellyaching about the Euro and how it affects us. The rise of the prophets of doom, headed by their "poster boy" Tony Abbott. Although I am sensing a turn in believing he is a contender for leading the Nation.

What caused the change?

We see great numbers on Australia's economy, so even though interest rates are lowered, the AU$ is rising.

Everyone is waking up to the fact that the Euro problems have been around for four years or more. And they won't go away in the next four years. In fact they won't go away in my view till the Euro is disbanded, or Europe becomes one political power, and that latter won't happen.

Australia will never have that problem because we have a floating Currencies and are the masters of our destiny. Keeping interest rates high is the solution to the problem, not the problem.

What is the connection to low interest rates and the Euro problem?

Its about Nations spending too much of other peoples' money because it was cheap. That created an illusion of being wealthy when you are not.
What does lower interest rates do. Make people want to spend other people's money. The cause of the problem in the first place.

My advice on interest rates to joe public. 

• Cut up your credit card. If you can't pay cash, you don't need it.
• If you don't have the money, don't buy it. 
• If you see a car ad with a 2.9% interest rate, keep walking! that's why we got into this pickle in the first place.

Yes I have said that the interest rates were set too high, and should be lower, faster.

But was I right? The figures on the economy have vindicated the RBA and proved me wrong.

Will we see more easing in interest rates. 

We probably will see lower interest rates, but hopefully that will not rise house prices, because they are already too high.

• Low interest rates and easy money caused the problem we now have.
• Lower interest rates will not fix it.

To those that link the Australian economy to the Titanic, I say this.

The iceberg was low interest rates and easy money. That is not the solution to a stronger Australian Economy.
The answer is people saving more, and spending less, so we don't have to borrow money from Europe to meet lending demand.

Interest rates will go lower, but don't let that make you spender too much on your next home. We happy with less. Less home, less gadgets, less debt, less junk, less mortgage.
Source: Mr Mortgage

Greedy banks to raise your mortgage interest rates above the RBA moves

CBA, Westpac, NAB and ANZ are tipped to raise mortgage rates over any RBA rate rises to fatten record profits.

Homeowners and home buyers are being warned to brace for their favourite bank to lift their mortgage interest rates by more than any rate rise from the RBA.
So if the Reserve Bank of Australia sees a rate rise as important, then expect a double whammy from the bank you have your mortgage loan with.
The RBA is widely tipped to lift rates by 0.25 of a percentage point next week, but your bank may ask you to pay more on your home loan, with some saying they will up rates by a total of 0.4%. [Mr Mortgage disagrees with this view by the way.]
Ant increase in mortgage rates will hurt mortgage stressed homeowners and put off a lot of home buyers, but the banks don't see this as their problem.
They have been writing heaps of quality loans, and now see this as a time to lock in the good times and not worry about writing new business.
So the big banks can afford to lose a lot of mortgage customers and still make a killing with the their extra margins in place on the remaining mortgage loans.

We have all heard the Banks excuses for increasing mortgage rates.

The banks have complained that the higher costs of funding their loans is squeezing their profit margins.
The banana smoothie story. Remember the Westpac Bank analogy of the banana smoothie vendor?
But Treasurer Wayne Swan has attacked any banks thinking of double dipping, saying they have reported solid profits. Mr Mortgage says they have all made record profits, but are addicted to ever increasing profits, so good luck with your plan Wayne.

Although the four big banks' total first-half profit climbed by $1.3 billion this year, they have complained that their profit margins are being squeezed because it costs them more to borrow from overseas than before the financial crisis. This beggars the question, so where did the record profits come from?

The RBA dismisses banks excuse to rise mortgage interest rates

The Reserve Bank of Australia yesterday dismissed the banks' concerns about their operating margins, saying they have shown little sign that they are under pressure and the interest rates they charge already have been enough to make up for the higher costs they pay for overseas funds.

Why your bank will raise its mortgage rates higher than the official cash rate increase

Your bank will raise its mortgage loan interest rates higher than the RBA increase simply because the big four banks simply have no effective competition.

The non bank mortgage lenders were all but wiped out in the wake of the Global financial crisis. This is the reason we are now paying higher mortgage rates than we should be.

Until the Government gets serious about a Government sponsored mortgage industry, initially for first home owners building new homes, then we will continue to have the banks ripping us off  with higher mortgage rates and be perpetually seeing house prices rise due to housing shortages.

Author: Mr Mortgage

Reserve Bank of Australia flags end to mortgage rate cuts and forecasts slower growth

The Reserve Bank of Australia has flagged the likely end of big interest rate cuts, with some economists betting it may hold back on further reductions for several months.
And financial markets scaled back expectations today on the depth of future interest rate cuts after the RBA released its quarterly statement on monetary policy.
A Credit Suisse report said financial markets now priced a total of 50 basis points in further rate reductions over the next 12 months, down from 68 points yesterday.
Macquarie Bank interest rates strategist Rory Robertson said he expected the RBA to “sit on its hands” at the next two meetings while it assesses the impact of the past five rate cuts and the federal Government’s $42 billion stimulus package.
“After having delivered an appropriately aggressive response to the post-Lehman Brothers collapse in global growth prospects, the RBA now can make a respectable case to wait and watch for a while,” said Mr Robertson.
“It’s certainly possible that rates will go to 2 per cent, but it will take longer to get there than three months.”
The central bank earlier this week slashed rates by 100 basis points to a 45-year low of 3.25 per cent, taking total rate cuts to 400 points since September, when the collapse of Lehman Brothers froze global credit markets and smashed equity markets.
In its statement today, the RBA said significant fiscal and monetary stimulus was now pumping through the veins of the crisis-weary economy.
Investors interpreted the statement as signally a more cautious approach to future easings in monetary policy, sending three-year bond futures down 15 points to 96.69 by late afternoon.
Australia's Central Bank also sharply lowered its forecasts for economic growth in coming years, implying that the economy was still at risk of joining major countries in recession before starting to pick up in late 2009.
The RBA expects year-on-year growth of 0.25 per cent in 2008-09, before improving somewhat in 2009-10 with growth of 1.25 per cent. The economy grew by around 1.9 per cent in the third quarter of 2008 from a year earlier.
The non-farm economy will post zero year-on-year growth in the June quarter this year before recovering to expand by 1.25 per cent on year in the middle of 2010, the central bank forecast.
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” the RBA said.
Mr Robertson said: “The bank has moved so far, so fast that its head is spinning and it’s time to sit back and assess the situation.
“The point of moving more gradually from here would be to ensure that the policy rate is properly calibrated to Australia’s economic prospects, not to the bleaker outlooks for the US, UK, Japanese and Euro-zone economies.”
NAB Capital senior economist David de Garis said he expected the RBA to cut rates by 75 basis points in March and then wait until the September quarter to cut rates by another 50 basis points.

There’s a time that central banks have to stand back and take a deep breath,

said Mr de Garis.
CommSec economist Savanth Sebastian said he expected the RBA to cut the cash rate by another 50-75 basis points over the next two months.
“More than likely the Reserve Bank will follow a similar pattern to that noted by the European Central Bank and keep rates on hold in March, assess all the incoming data before cutting rates once again in April,” said Mr Sebastian.
The RBA's growth forecast for the near term is slightly more pessimistic than the Rudd Government, which earlier this week forecast the economy would grow by 1.0 per cent in 2008-09, before slowing to 0.75 per cent in 2009-10.
The central bank forecast 2008-09 growth of just 0.75 per cent.
Late yesterday, Treasury Secretary Ken Henry, who is also a member of the RBA's policy making board, told a parliamentary committee that the Government's forecasts for economic growth were based on an assumption that rates will be cut further.
The impact of the intensified slowdown in the world economy in recent months and the economic stimulus being put in place would result in the downturn and recovery being more V-shaped, according to the RBA's latest forecasts.
Deeper troughs in growth will be followed by strong growth of 3.25 per cent on year by mid-2011. Previously the RBA had forecast the economy would be growing at 3.0 per cent by mid-2011.
Substantial stimulus has also flowed to the Australian economy in recent months as a result of a sharp decline in the Australian dollar.
The currency came close to parity with the US dollar in mid-2008, before plunging to just above US60 cents late last year and then recovering to around US65c currently. In trade weighted terms, the Australian dollar is 20 per cent below its level a year ago.
The RBA also revised its forecasts for inflation, predicting annual rises in the consumer price index would fall back to within the central bank's 2-to-3 per cent target band by mid-2009. Previously it had forecast the CPI would not be safely tucked within the band until mid-2011.
Despite expectations of an eventual growth recovery, the RBA expects the jobless rate will rise further. "With job vacancies and hiring intentions falling and short-term economic prospects subdued, more significant rises in unemployment are likely in the period ahead," the RBA said.
Some improvement in the house construction sector can be expected after a sharp downturn in 2008. Significantly lower interest rates and direct financial assistance for new home buyers by the government were now showing signs of adding to housing demand, it said.
Consumer confidence remained battered, but some recovery can be expected as the government spending measures and lower interest rates add "further to household incomes in the March and June quarters this year", the central bank said.
Also insulating Australia from the full heat of the global economic downturn was a strong financial sector, which has allowed a substantial amount of monetary policy easing to be passed through to consumers and more so than in many other countries, it said.
Still, the RBA is keeping close watch on business investment, warning investment intentions are being significantly wound back as some companies experience difficulty in obtaining credit.
Business confidence deteriorated sharply in October and November but this "has been partially reversed in December and January," the central bank said.
Against a backdrop of rising unemployment and weakening economic growth, the RBA would be under pressure to continue cutting interest rates for at least the next year or two, said Mr Robertson.

Credit is off the boil in credit cards to business investment

AUstralian consumers and businesses are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."

Not happy bank! Australian banks earn $2 billion in fees and charges from their customers

The major Australian banks earned $2 billion more in fees and charges from their customers while hiking interest rates independently of the Reserve Bank.
New research published yesterday showed that in the year to June, the most recent figures available, banks accrued income from fees and commissions of $22.6 billion.
The result was well up on $20.48 billion they earned in the previous year and came as they were lifting, of their own accord, rates on mortgages, credit cards and personal loans.
The spate of rate hikes started in January when each major bank moved independently of the Reserve Bank, blaming the global financial crisis for increasing wholesale funding costs.
The round of rate hikes occurred on top of the Reserve Bank of Australia's two upward movements in official rates in February and March.
The figures published by the Australian Prudential Regulatory Authority did not show the impact of the 300 basis points in cuts ordered by the Reserve Bank in the past four months.
However, some of the banks have not passed on the full cuts to customers, with ANZ and Westpac keeping some of of the reduction from the 100-basis point cut by the RBA this month in their profit margins.
The level of account fees paid by Australian customers has reached a record high, with at least $1.4 billion spent in the June quarter on transaction and lending activity.
MWE Consulting analyst Mike Ebstein, an independent researcher, said the increase in fees came as customers placed more money with the major banks.
"The year end June total is up on the year end of June 2007," Mr Ebstein said.
"But the last quarter went against the annual trend and the 10.4 per cent growth in fees and commissions was well below the growth in assets and deposits."
Despite the increase in fees, Australians have turned into fiscal conservatives, choosing to hoard cash out of the volatile financial markets.
Before the recent interest rate cuts, banks were offering deposit rates above 8 per cent in a bid to reduce their reliance on volatile funding markets. However, as official rates have been cut, deposit rates have been slashed.

Reserve Bank of Australia to cut mortgage rates again in time for Christmas

The Reserve Bank of Australia's board will be cutting mortgage interest rates deep again for Xmas
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.

Analysts say any interest rate rise would stifle a much-needed recovery in housing investment

All eyes will be on the Consumer Price Index (CPI) for the September quarter.
Any inflation spike could force the Reserve Bank of Australia's hand when the Board meets on Melbourne Cup day.
Meanwhile, the housing shortage brought on by a surge in migration is being cited as a major contributor to the official inflation result.
Economic forecaster BIS Shrapnel says any interest rate rise would stifle a much-needed recovery in housing investment.
BIS Shrapnel economist Jason Anderson says clearly not enough is being produced in terms of the rate of dwelling construction.
"There is a need now to articulate how governments are going to respond to an environment really which has changed very quickly in terms of that overseas migration and the population gain," he said.
"But it's now becoming much more important in terms of the outlook for inflation and we can't set aside yet as the temporary phenomenon.
"This is an issue that will be with us into the next couple of years at least."
Rental shortage
He says the rental shortage will continue to attract a lot more attention in the determination of the inflation number for some time.
"The real problem then is that any policy action to remedy or try and address the imbalance between supply and demand, will take quite sometime to come through, and in the meantime, there will certainly be an acceleration in rentals," he said.
"With that in mind, it's a difficult balancing act, I think, for the Reserve Bank, because it's contributing to acceleration in consumer prices, but on the other hand, any policy action will probably dampen still, the rate of dwelling construction and that of course then has feedbacks in terms of extending the imbalance between supply and demand."
He says depending on Wednesday's CPI result, the Reserve Bank decision is going to be very evenly balanced.
"I think there is a need to look at, obviously, the wider context in terms of consumer spending," he said.
"We have seen a reacceleration in terms of how spending growth.
"The housing market conditions, with the exception of Sydney, seem to have had life, new life breathed into them over the last six months and that would indicate that the impact of the rate rises that we had last year, obviously the evidence is yet to come through in terms of the August rise, have not been that substantial.
"So also when you add to that, the fact that the employment growth figures remain solid means that it's going to be quite a difficult decision."